WMC - Earnings call transcript Q4 2021 | Western Asset Mortgage Capital Corp

Due to licensing restrictions, you must log in to view earnings call transcripts.

Operator

Welcome to the Western Asset Mortgage Capital Corporations Fourth Quarter and full year 2021 Earnings Conference Call. Today's call is being recorded and will be available for replay, beginning at 5:00 PM, Eastern Standard Time. At this time, all participants have been placed in a listen-only mode, and the floor will be open for your questions following the presentation.

Now first, I'd like to turn the call over to Mr. Larry Clark, Investor Relations. Mr. ahead, go Please Clark.

Larry Clark

company I Relations discuss thank Corporation Western Fourth at available XXXX. for John. yesterday press us and www.westernassetmcc.com. of afternoon financial for the today the it's The full-year and to Asset the Quarter its want you, earnings everyone release Investor to in joining results issued section Thank Mortgage website Capital company's

With the us the and has Handler, from Lisa during included website on that Officer. Sean and company presentation to Officer. you Investment Deputy addition, Chief Bonnie In the Chief are Chief slide call. today management, Executive Greg Wongtrakool, Investment refer can a Officer, Johnson, Financial Chief Officer. President Meyer,

are turn section over of law. differ included statements to this any conference the the materially contain results statements in this Bonnie by Risk the All company's call constitute unless be cause from Factors forward-looking Certain materially safe of Before and disclaim forward-looking of of the the outcomes now Reform obligation notice. harbor to are Bonnie. are the meaning that to by that, control in contained intended forecasts included subject company. will as the to our Act. We many I'll begin Actual without call provided we like With protection due results Wongtrakool. factors impact to This to statements within filed could forward-looking update beyond the I date to the reports Private forward-looking only those of presentation statements the subject with XXXX. to the SEC. required of review this presentation Act made Securities statements the differ All of change those are from could the statements forward-looking and such Litigation statement. safe harbor factors actual in Reform that

Bonnie Wongtrakool

and Thank you, welcome everyone. Larry,

to our focus we on December to last of in related investments going and out residential we know, transition portfolio. you estate that investments As real plan forward, announced commercial the

is to transition in allow to this to Investing market We while core a area Asset's XX competencies. expect track any over over experienced will Western attractive address record. whole focus opportunities, believe where we with in the and experience not losses investing residential have occur maintaining next us the has alignment months. non-QM has sector time deep We been an since XX this loans solid frame. this and Western this WMC cumulative XXXX

acquiring residential fourth investments. continue CMBS the loan by whole During million $XXX of million our maturity our of shift we exiting loans, of quarter, extending facility non-Agency strategic approximately the our whole to implement $XX.X and residential

for discount $X bought short-term at million believe enabled to of addition, to and In backed completed book February, rate the significant right market back our an residential we common which of we to XXXX. million interest was repurchased approximately XXXX interest long-term a by at in our of of rate rates weighted In the move, in $XXX expectations X.X%, of stock value. third average whole our and loans. financing securitization notes fixed us we attractive million given lock securitization shares rise $XXX This XXX,XXX additional convertible approximately

one of we investments. addition, resolution In in a reached successful February, on our challenged

proceeds hotel gain $X.X received an We've Specifically, sale million a of on property. million in estimate we $XX unencumbered XXXX. record foreclosed we sold on we will the the property, net in

our fourth quarter This our we earnings portfolio. power by was would notes that in investing be retiring earnings portion the issues our negatively stock. the impact process which target XXXX are could portfolio, as and common of in there our combination amount of of as We remaining and anticipate a the assets, We our that were we timing of our proceeds, anticipated the transitioned several a the near-term in outstanding redeploying repositioned convertible of repurchasing the impacted will be principal factors. case

First, exited investments relating associated we the incurred non-Agency we interest $XXX to the commercial the hotel transition, we in a of investment property, with quarter on had non-accrual We estate in and real of third million quarter. the portfolio lower one incremental the sale income CMBS net for expenses placed ownership and as our status.

higher or and decrease Distributable elevated in in share of these resulted interest per asset the share. Second, loss our net X.X% a residential of of share, a values. book were or fluctuating the third, $XXX,XXX The due $X.XX conditions per activity $X.XX per rate from prepayment GAAP third earnings And on factors in a market GAAP we challenging and million fourth portfolio. quarter. volatility whole quarter loan of combination $XX.X experienced value to

was protecting committed clearly this a quarter, we value. and growing While to portfolio challenging remain shareholder our

of the we're attractive resolve our steps the power that We investments, taking necessary to earnings balance the generate sustainable order are in support improve portfolio, confident that to earnings our sheet, and an dividend. challenged strengthen

I'll to to portfolio. it Greg Sean Now, and into the detail more hand investment Sean? about over go

Sean Johnson

Bonnie. Thanks,

investments indices rates. in housing historically rates, tight mortgage by perform balance double-digit the quarter, incomes. and low rising healthy sheets, supply, fourth well national home again supported benefiting continue residential market annual Our to rose Fourth-quarter consumer price strong from a the

the combined appreciation prioritize conditions as housing disciplined a their to period. our incentive during for these quarter, plan declined, in supported loans price origination their year-end, underwriting, more CPR confirmation where lender homes. portfolio and and on fourth low given the we production. housing dynamics repayment prepayments refocus price occur. a periods. home favorable credit was burdened provides performed borrowers meaningful XX.X the continue And swings market, fluctuations forbearance originators the prior the Mortgage homes we focus market quarter's their our standards. of in level volumes have and year. creates just when them that obligation. our payments, declined that but And believe at respect effectiveness were year-end, today's of expect as from to at current to third payment strong loans With underwriting we mortgage the responsibly the it XX to when to to less Non-QM forward loans from portfolio, the four cushion strength equity home fundamental a non-QM their remain more demand and in and moderate, economic rates loans will it on much equity high-quality on believe is they withstand generally non-QM in in XXX today consumers this see are beginning dropping than of remain supply as with underwriting at well to grow CPR. in in This we have While with in mortgage Mortgage We of remained

and with new year's total to two, acquired engage $XXX originators whole non-QM to $XXX fourth of continue a residential million. and million loans during sorry, We bringing the existing quarter, the

in the we able As attractive strategic relationships discussed our our with originators have opportunities well loan us we to and past, to developed meet with are residential mortgage understand provide disciplined have specifications who criteria.

near-term goal and a lower portion the focus plan loans grow were through continue Our demonstrate We approach whole financing to to to these with securitization. this able always on LCVs of desire to to investments the portfolio to with repay. ability high-quality borrowers of our in residential strong has been

of holdings. executed continuing our third As Residential Whole permanent our Loan February securing securitization, successfully Bonnie strategy on mentioned, in financing our we

over the call we Whole I'll maturity. during details that, our obtaining Lisa the Residential during to In with Handler discuss quarter, commercial terms addition, will Greg. And improved additional fourth the turn new and to facility, terms our comment. amended Loan holdings. provide extended of her Greg

Greg Handler

commercial to we approximately security. acquired hotel in fourth mortgage-backed we foreclosure. last regards $XX of in we quarter, Thank sold you, And the loan year non-agency to that Sean, our year-end, portfolio, to million commercial the subsequent be sold

organic with mentioned, refinance performing remain cash plan on paydowns XX Bonnie to the alternative - but market six expectations. we over we representing for As with line dispositions. These XX next viable will off majority as loans next a expected flows. commercial pay borrower's, seven believe year-end, loans post fair one with commercial At properties months, exiting held are months the whole COVID the over and the those $XXX in particularly of to for all stabilized of opportunistic the XX loans value, we million our and holdings through

address to other regarding and judicial to lenders by with alternatives lenders to granting in situation. the path and the uncertain potential we are the depends timing looking in and We remains junior the process time it to respect by With loan on property. loan engage each in to of U.S., a located as However, the entertainment backed payoffs avoiding as new borrower recovery. pertaining complex the balance strike ultimate believe continue the a to project Northeast certain and the specific mezzanine factors retail discussions the borrower

fifth currently value Given X up ongoing the on third loan of XX outcomes, development. ongoing from the possible a our uncertainty is the quarter at to spot based regarding million marked slightly

As valued momentum sponsors to is portfolio or generally our we're assets loans hotel a previously, positive leisure operating and properties. loan-to-value million class non-agency high-quality impairment remains at million, materially, remains we impaired. been retail properties we These scenarios. properties believe our further which mortgage-backed had cater of equity an that of representing with have Within but these have portfolio these of $XX a and mainly one under portfolio, a $X commercial noted approximate certain collateral at loan consists that risk are their see This not million original permanently large of of travelers continuing $XX of credit portion values strong all there XX% the that to securities, current. and number

Our challenged. are $XX CMBS at some improving remain conduit And loans, exposure credit on is while valued trends million. others

continue continue a and as will lifted to reopening. moves eventually towards believe full these COVID restriction that challenges of many We recede be near-term the economy to

quarter, sales upside borrower, of their totaling one better I for at million and during for As alternatives single single value. investments CMBS asset, the were We was and target three believe there relative These the conduit approximately to that that credit these our in the two we securitization. exited mentioned, $XX downside positions, skewed the capital consisted assets.

sales evaluate potential potential in optimize as portfolio future existing we our summary, over future turn values. on Lisa and manner of to our residential our positioning disciplined commercial space, new to in call In a for to investments CFO. recovery continue remained we adjusted will Meyer, appreciation will seek our this risk President I returns. We attractive now Lisa? the that growing portfolio offer our with and investments focused

Lisa Meyer

Greg. you, Thank

balance financed measures strategic $XX which $XXX financing with $X under a secure Whole our I partners attractive platform, be for million, to fourth to loans, broader provided this term, which to capacity we million from and longer rate XX-month Whole quarter, Loan million year-end, convertible million, plus average further reduced the on of LIBOR taken of million December the the facility, some sheet. existing million on the of balance basis we XX at approximately facilitating Upon $XXX $XXX reviewing Western X%. a stated the was At Asset facility. Residential amended to with completed have our portfolio. recently Residential repurchased highlight under capacity an The due our million Xst, our amended facility. to facility. work to of approximately interest outstanding a borrowing we of notes. of our par loans, our facility term Residential continues facility Whole on additional on utilized continue Loan had aggregate to has long-term XXXX, X%, principal and October non-QM points. Fourth November, we February Loan on of notes our financing. want In a liquidity growing there our approximately WMC ability benefit the previously XX, will X.XX premium Before the amount weighted securitization, results, an XXXX, outstanding In of a of balance Residential to we securitization Whole senior $XX.X quarter outstanding is improve of $XXX of we leaving floor which improve completing In LIBOR XXXX the had remaining third were At Loan

investment have retiring Our goal exist execute to the continue ample XXXX of XXXX prior notes and our liquidity the notes over repurchasing maturity maturity. is seven and accretive our on we repurchase months. the next their Provided that address We to opportunities strategy. to believe

as of Securitization as February sale we cash the unused February approximately borrowing and of our the and equivalents, facilities. With both under XXXX, had million cash residential asset, XXth, the $XX hotel as of securities and well financing capacity

financial our to turning results. Now,

our in release We earnings presentation. in have fourth regarding our and press provided great portfolio our quarter detail results our

that fourth items share. third additional or million, or down So, $X.XX drove from focus to $X.X the quarter's Three level earnings $X.XX of discussion. weren't am quarter, only We going on factors I of the share, distributable the $XXX,XXX, per reported primary decline. for per

million from $X.X income security the conduit, net distress to interest cost First, change to we CMBS method. non-agency recovery recorded lower an accounting a

Second, an portfolio of premium increase loan level whole the our residential to fourth experienced in amortization we an elevated of that prepayments quarter. in $XXX,XXX led in

fourth million of the of $X.X we a total For amortization. quarter, reported premium

lower Third, of quarter the income we assets, million million commercial from residential interest of net real loans. of for $XX experienced estate whole payoffs and $XXX

was the Also, get the earnings $XX and we new producing commercial residential capital cost We funds approximately investments of income improve either the the deploy residential into residential lower not X,XXX we capital, While million. facility. repurchases full investments of assets prepayments quarter million as of was paid-off. hotel and improved income the income the we The benefit $X.X loan sale into, than generally the redeployed additional under will seats are net decline or decline investments, interest our about that received from did the aggregate whole yielding both believe the in as notes. amended

the earnings for fee in addition, management XX% the benefit XXXX paid manager. our our will In to from reduction

quarter mainly asset that $X.X was transaction associated than consolidated portfolio rather the per net While with the factors. evaluate of the on $X.XX decreased Economic for that decrease income. the our our $X.XX $X.XX share, the every were is it include of our than factors we distributable whole our in value the sold nonrecurring by X.X% of the per was liabilities, based majority and the third gross which the the our driven long-term, taxable several dividend costs $X.XX by share for and per or power of per in interest margin of fourth value quarter earnings from a the per Lower and loan outlook quarter portfolio, on book value, $X.XX earnings per share, the level of quarter. dividend The quarter to in book reflects $X.X was important our modest of portfolio. to hotel $X.XX trust million share. or note February sustainable retained spread residential These $X.XX decline share, the million for interest for share our or of per of GAAP associated XXXX. share securitization lower widening assets

This leverage Now investments Residential turning new Loan at ratio from financing recourse primarily to leverage. at times, due September was whole our up year-end Facility. of times X.X our our loans X.X was XXth of residential under to XXXX. Whole

completed declined ratio we our expected. which is recourse non-recourse, February, in the has securitization as leverage As

focus capital summary, with fluctuate that portfolio Our to continue liquidity. we our additional recourse as solidify ratio continue we the will of goal and grow maintain leverage the securitizations. In to on executing our actions will structure

we that are the our were financial With pandemic. well-positioned With select grow our portfolio will to estate that, sectors now now longer certain significant up from objective ahead. of your Operator, results that of investment WMC real the go attractive financing, of positioning through to opportunities please impacted assets open the ongoing feel ahead. continue the quarters with questions. to call improved in While to by most financed portion we term and we economic a improving the recovery benefit commercial the conditions by

Operator

you. Thank

pause will momentarily the to [Operators assemble now begin question-and-answer Instructions] roster. We session. We our

comes with from Securities. Cranston go question first The JMP ahead. Please, Trevor

Trevor Cranston

morning. Good Thanks.

of loans the also acquired into seen can market return newly year? you in on was talk terms quarter. has You widening can light continued couple what far changes what of new in that, of loan guys terms about pricing the be talk I first would spread what referenced about so Is relative on portfolio, a this the towards loan Thanks. which the quarters? in residential today of expected securitization And origination the loan you've last the and it in you in in believe purchase

Sean Johnson

I'll Sean, take It's one. Trevor. Sure, that

have it say call are X%, target I'll seen up. We our rates primary area. to And above We've around note borrowers in, right that now would rates rates, low prices X% slightly move just down. very come where They were X%. so I seen

have rates points. moved primary So basis XXX up roughly

stuff pretty the balance the securitization still sort it's is in are in roughly the in number execution yields there, are are think mid-fours adjustment still so X%, that and sheets rates the right think that a on the is out I low. the of rates. of large I unchanged after originator low-to-mid and There's loan certainly bank there that loans on sitting now with NIM

XXXs stuff don't that mid dollar prices it, buy. high for like I we're know, in of to we'd call the So we've to seen type that the,

and that the is plan all-in below dollar one-on-one around move there's still business been is point intact prices, definitely a roughly area. NIM Now, basis so XXX there. still the and But

Trevor Cranston

the the Got speeds prepayment results. rates to on impact you can expect it. helpful. about the guess in go And first forward in quarter, increase prepaid in rates in That's about increase loan and fast on mortgage of you impact fourth also talk you the I the portfolio? light rates that much talked speeds quarter amortization of and how the

Sean Johnson

with and January fourth the quarter come pretty they saw We were in speeds. speeds consistent

are roughly down much close we a should for A over speeds are the area, We couple rates borrower our the last numbers to much? ones note where potentially as especially are Those costs, higher. that think to a decline. That stay you expect bit. the I not trying borrower's, are we year. necessarily said, lot really target come we said there, more in loans. they up can't to I on amortization buy So disappearing little predict. that think $XX how lot refi By so see of are quarter the but million million, rates months see of do But we of next right should now, if was $X.X the opportunities

may dollar increase, the So so well. income will as but that amount

we in months XX%, agency those declines immune space. think couple declining. XX% where I the now see be space And next right they well. XX% from think to to even of as speeds to maybe I non-QM is I going don't over know, don't the are

Trevor Cranston

Okay, volatility that of the the all markets? on how in comment value makes trended sense. end is since Can the Thanks. given year, seen book we've the you

Lisa Meyer

still guidance We're any I audit. Yeah. give the finalizing value. book Hi, Trevor. year-end Unfortunately, after books closing can't our on

to but I slightly that. we So can't value specifics trend expect out give book upwards, see on would

Trevor Cranston

Okay. Fair enough. comment. the Appreciate you. Thank

Operator

Jason next from comes The question JonesTrading. Stewart ahead. go with Please

Jason Stewart

Thanks. a where morning. start global with to Want the is a keep versus to more waiving question. fees, taking context private? think as of there? etc. public a mindset of Good WMC When you the team management of in What the it appetite vehicle

Lisa Meyer

Sure. the Thanks Jason. I'll that, question. take for

the As financing committed calendar you do XX% fee wave and manager to that originator, diversifier you know, we're to our looking the XXXX and noted, for which WMC partners and such. we do benefit remains when our at did management from expand absolutely relationship

has And so remain that They none of changed. supportive.

forward, terms going on transition. other portfolio, to But near-term focus making value. and plans always on increase for ways does a successful execute this our is We're now, to really to our grow our focus to In of open organically. remain and transition shareholder the

Jason Stewart

that it I the there? Jersey preclusion strategy appreciate relates negotiation Thanks. the stock there the to color work back out as Mall. buying Is on And New to any

Bonnie Wongtrakool

you take do that want Lisa, to one?

Lisa Meyer

Sure.

But back stock to book organically the our in did the as grow far fourth and look at are. mentioned, a we buy to continue discounts at to as priority significant Bonnie company. back buying quarter, we Trading value. stock, think, we I is buying stock continue because as to So

the look those to improve the earnings also have in power to back outstanding, we assets continue at keep capital. our and So of capital, also best power capital to use of and used to portfolio? the producing We Is that buy income that we earnings the to XXXX notes, to grow we million to in the consideration have which trying put of better portfolio. into determine $XX.X what's that have the

of those all how weighs company that's it the what's when that determining on the things going And deploy the think I best have. capital we will we use forward. So

Jason Stewart

the Right. you work my any Is guess that Thanks, preclusion I sound out back? you Lisa. was the as there prohibits like It from answer is stock question buying negotiate no. more legal-oriented.

Lisa Meyer

No. materially almost No, something -- no. disclosed. going wouldn't a is to at There We in be be blackout

blackout be back we So wouldn't My from no, stock. in buying apologies. a

Jason Stewart

it. Got

appreciate that. how And then, the workout a when Okay. from one I some side? fourth-quarter non-accrual Should forward the should the take costs loans you workouts, benchmark? going we on look use an of nonperforming we, Or from at high modeling forward? perspective, me, last a other as for anomaly that was the

Lisa Meyer

don't think that a you I for use benchmark. should

on specific high was that a was asset, that think I I to so the particular that side. think little probably

think that's on I of did the think costs which to foreclose with balance would I that that asset intention asset, hotel lot on nonperforming, it needs don't with bring the the other a assets. sheet as

Jason Stewart

Thanks it. taking the right. question, for All appreciate Right.

Operator

The go next of question America. ahead. Derik Bank comes from with Hewitt Please,

Derik Hewitt

everyone. morning, Good

about think there securitization So leverage financial the we given with leverage is more structural longer should strategy? term, how

Bonnie Wongtrakool

start thanks the I'll question. Derik. for [Indiscernible] Hi, Yes. there's and

and in terms cycle that on and two Does depending we between of just half where securitization leverage, are down So at we'd in four up in expect, answer given this are times question? -- somewhere your would be going cycle. and we the that where we

Derik Hewitt

Were there And XXX,XXX a mentioned in quarter. X.X another was just been, question for related maybe quarter the onetime next affected items. that was were two fourth or does. get items at and three non-accrual events had other distributable adding the that I it just trying to another there that some related to of items earnings is nature you a was there to explore $X.XX would other quarter. thought back my million results? And unusual Yes, it was have I'm seems then fourth what sense least like during those

Lisa Meyer

No.

a captured you've think I of them. number

of the capital that I timing important significant just think had and in the third the are it was it assets that was off And because of in assets. amount off fourth we also end in quarter. not will hotel of that like received, company to lag asset, which And into paid paid can assets note income for income-producing help capital I we distributable of redeploying forward. quarter that a with it's capital now asset been $XX a months. redeployment timing definitely the we producing earnings that think closed on now into felt deploy do million has going asset several that income producing that

Derik Hewitt

color just And then it's basis, question longer-term there trading I is Okay. of would in, kind about shorter-term my dividends at be dividend. that thought you more the we XX suggest months, over last dividend basis? a of least guess, at that just the maybe kind level a provide the period you're in a realized the to but cut would next there additional I about how given in of a terms the saw XX -- can thinking stock is on a short-term. is that any transition the of that

Bonnie Wongtrakool

Yes.

Lisa Meyer

Bonnie, you ahead, go. -- got we've can when Some

Bonnie Wongtrakool

Lisa, that at just from say, in going was comments. long-term we Lisa her perspective, respect looking to described a to dividend, with this are I the as

us So we're power. looking at today, steady-state for with our that model in earnings post-transition. the the newer business at is And long-term

So she income taxable mentioned, that consideration. consideration, as well a as is

that, rather based looking just basis what at So longer-term. but not from on and we might quarter-to-quarter a are happen, not event-driven,

weeks. by recommendation made modeling, the will decision the in is is three be that based this and We make upon a with meeting that Board. them So

Derik Hewitt

you. Thank Okay.

Operator

any question-and-answer over Wongtrakool the remarks. session. turn closing to I'll conference back Bonnie our concludes This for

Bonnie Wongtrakool

joining you with us interest for a for today's ahead. personally to Operator. call. connecting WMC your and in all continued safe. We I the day remains and of thank you, forward And good look weeks everyone hope Have you again healthy and appreciate in Thank

Operator

for attending The conference Thank presentation. has concluded. you now today's

disconnect. now may You

Western Asset Mortgage Capital (WMC) 3 Mar 222021 Q4 Earnings call transcript